Supreme Court New South Wales Medium Neutral Citation: Ludwig v Jeffrey (No. 5) [2022] NSWSC 497 Hearing dates: 4 March 2022 Date of orders: 27 April 2022 Decision date: 27 April 2022 Jurisdiction: Equity Before: Slattery J Decision: Costs orders made. Catchwords: COSTS – trusts and trustees – indemnity of trustee – series of judgments given, determining the scope of the indemnity of a trustee – the parties contest the quantification of the indemnity – Court considers gross sum costs orders under Civil Procedure Act 2005, s 98(4)(c) – what final costs order should be made. Legislation Cited: Civil Procedure Act 2005 Conveyancing Act 1919, s 163B Powers of Attorney Act 1971 (UK), s 10 Powers of Attorney Act 2003 Trustee Act 1925, s 100A Cases Cited: Bechara (t/as Bechara and Company) v Bates [2016] NSWCA 294 Belfield v Belfield (2012) 83 NSWLR 189 Harrison v Schipp (2002) 54 NSWLR 738 Ludwig and Jeffrey [2019] NSWSC 1550 Ludwig v Jeffrey (No. 2) [2020] NSWSC 1677 Ludwig v Jeffrey (No. 3) [2021] NSWSC 23 Ludwig v Jeffrey (No 4) [2021] NSWCA 256 Pilkington v Inland Revenue (1963) 3 All ER 622 Category: Costs Parties: First Plaintiff/respondent: Joanne Elizabeth Ludwig Second Plaintiff/respondent: Robert Walter Ludwig Defendant/applicant: Lynton Barrett Jeffrey Representation: Counsel: Defendant/applicant: C.T. Ensor Solicitors: Plaintiffs/respondents: David Shad, Shad Partners Defendant/applicant: John Michael Whitfield, Whitfields Solicitors File Number(s): 2018/145933 Publication restriction: No. Judgment 1. This is my fourth judgment in these proceedings and the Court's fifth judgment. My previous three judgments fully set out the background to these proceedings Ludwig and Jeffrey [2019] NSWSC 1550; Ludwig v Jeffrey (No. 2) [2020] NSWSC 1677 and Ludwig v Jeffrey (No. 3) [2021] NSWSC 23. The proceedings then went on appeal and the Court of Appeal gave judgment upholding Court's previous determinations: Ludwig v Jeffrey (No 4) [2021] NSWCA 256. This judgment should be read with the Court's previous judgments. Events, matters and persons are referred to each judgment in the same way. 2. This judgment determines most of the remaining costs issues between these parties in this long-running action. The Court indicated in declarations made with its third judgment, given on 27 January 2021, that it would impose various caps upon Mr Jeffrey's claims for indemnity from the trust fund, as follows: "[3] Declare that the defendant/cross-claimant is entitled to indemnity out of and may apply the fund held by the independent solicitor, for the defendant/cross-claimant's legal costs and expenses incurred as trustee in the administration of the Trust, for the following periods in the following amounts, or up to the following maximum limits: (a) $29,558.78 for legal costs and expenses incurred for the period prior to the commencement of these proceedings on 9 May 2018; (b) a maximum of $90,000 for legal costs and expenses incurred in the period between 9 May 2018 and 20 February 2020; (c) a maximum of $20,000 for legal costs and expenses incurred in the period after 20 February 2020 up to the date of judgment on 30 November 2020 but excluding costs associated with the conduct of the motion before Lindsay J in June 2020; and (d) the legal costs and expenses incurred on an indemnity basis in the conduct of the plaintiffs/cross-defendants' motion before Lindsay J on 2 June 2020;" 1. Those declarations were made in the following context. Declaration 3(a) represented the full amount that Mr Jeffrey had claimed of $29,558.78 in costs incurred prior to the commencement of proceedings. Declaration 3(b) embodying a cap of $90,000, represented a discount of $30,000 on the approximate $120,000 that Mr Jeffrey estimated he had incurred defending these proceedings up to 20 February 2020. Declaration 3(c), embodying a cap of $90,000, represented a discount of $5,000 on the approximately $25,000 that Mr Jeffrey estimated (as at the date of the second judgment, 30 November 2020) that he had incurred defending these proceedings after 20 February 2020. 2. In the orders made on 27 January 2021 the Court also stayed the payment out by the independent solicitor of any monies held by him until the Court fixed a specified gross sum instead of assessed costs, under Civil Procedure Act 2005 ("CPA"), s 98(4)(c), as this was an appropriate case for that to be done given the history of conflict between these parties. The Court made directions with the third judgment for the parties to prepare for the s98(4)(c) contest. The Court framed that contest with the following observations, to try and reduce unnecessary later contests: "[16] All the Court needs to do here is to determine if the quantum of a specified gross sum instead of assessed costs in respect of the periods in declarations 3(b) and (c) is more or less than $90,000 and $20,000 respectively. If it is less, the Court will fix the figure. If it is more, the Court will authorise out the payment of those two sums. The Court will also make a specified gross sum costs order in respect of the costs of the motion before Lindsay J: declaration 3(d). There is no reason why the sum of $29,558.78 provided for in declaration 3(a) cannot be paid out by the independent solicitor to Mr Jeffrey immediately and the orders will so provide. [17] The Court has made directions below that are preliminary to fixing a specified gross sum instead of assessed costs. The parties will need to direct the Court with precision to the materials already filed and to identify their bills of costs to reduce expenditure on this issue. The Court does not require and will not permit expert evidence on the s 98(4)(c) determination. All that is required is the memoranda of fees and the parties' short submissions. [18] But the Court points out that, to the extent that further expenditure is incurred on this issue, the Court may make a costs order against the party who is unsuccessful. And if Mr Jeffrey is the successful party, that costs order may be made on an indemnity basis. [19] Success must be defined in advance. Mr Jeffrey will be successful if the specified gross sum instead of assessed costs exceeds the combined cap amounts in declaration 3(b) and 3(c) by more than 5%. The Ludwigs will be successful if the specified gross sum instead of assessed costs falls short of the combined cap amounts in declarations 3(b) and 3(c) by more than 5%." 1. The s98(4)(c) contest did not take place as expected in early 2021 because of the appeal proceedings. The outcome of the appeal proceedings did not alter the Court's orders made on 21 December 2021. 2. The matter was relisted on 4 March 2022 for final submissions on costs. Mr David Shad of Shad Partners, appeared for the plaintiffs, the Ludwigs. Ms C. T. Ensor of counsel, instructed by John Michael Whitfield of Whitfields Solicitors appeared for the defendant, Mr Jeffrey. 3. At the 4 March 2022 hearing the parties contested a limited number of remaining issues, mostly concerned with the s98(4)(c) contest. 4. The appeal proceedings are complete. They were followed by a directions hearing on 15 December 2021 and a final costs hearing on 4 March 2022. 5. In orders made on 21 December 2021 the Ludwigs formally abandoned a contention that they had maintained at the time of the Court's third judgment, limiting Mr Jeffrey's capacity to exercise his right of personal indemnity against the Ludwigs should the trust fund be insufficient to provide complete indemnity to him. The Court made the following orders that day: [3] Further note that pursuant to Trustee Act 1925, s 100A, the plaintiffs consent to the Court making an order for the plaintiffs to pay the defendant trustee's costs out of the funds remaining with the independent solicitor, Mr Zaki Hajjar, in an amount to be allocated by the Court at the same time that the Court makes gross sum costs orders instead of assessed costs. [4] Further note in respect of Order (3) that the plaintiffs do not contest and have given written consent to the Court making an order that they be personally liable for the gross sum costs order. 1. This is sufficient to record the Ludwigs' abandonment of this argument. The Court does not need to formalise orders, beyond noting that the Ludwigs are no longer pursuing any argument under Trustee Act 1925, s 100A. 2. Several matters raised in the parties' written submissions ended up not being contentious. These can be dealt with briefly first. The parties accept in accordance with existing orders that the balance of the funds held with the independent solicitor after orders made in these reasons have authorised the disbursement of those funds, can remain with the independent solicitor until the outcome of any assessment of the costs incurred in the Court of Appeal. Whether or not the costs orders made by the Court of Appeal will be sent to costs assessment is a matter for the parties. The Court indicated to the parties that the making of specified gross sum costs orders in respect of the Court of Appeal's costs was a matter for the Court of Appeal not for the trial judge. 3. The parties informed the court that the amount of $174,494.34 is presently held in trust by the independent solicitor. 4. The Court is attempting to assist the parties by making orders for a specified gross sum instead of assessed costs, under CPA, s 98(4)(c), so that they will not be involved in further acrimonious dealings during a costs assessment. 5. The Court is satisfied on the materials provided to it that the Court can arrive at a logical fair and reasonable estimate of a specified gross sum under s 98(4)(c): Harrison v Schipp (2002) 54 NSWLR 738. The Court has before it on affidavit all the invoices in respect of the costs claimed by Mr Jeffrey and has a sound appreciation of the work which was done on his behalf during the proceedings. The Court will, as the authorities direct, adopt a "broad brush" approach to the task: Bechara (t/as Bechara and Company) v Bates [2016] NSWCA 294. The Court is mindful not to apply judicial decisions concerning general discounts on party/party costs under s98(4)(c) to trustee indemnity costs, to which no discount should be applied as a matter of course. (1) Costs Covered in Declarations 3(b) and (c) Made on 27 January 2021 1. The parties are at issue as to what specified gross sum costs order the Court should make in relation to the two groups of costs covered in declarations 3(b) and (c) made on 27 January 2021. There are two sub- issues. 1. The first sub-issue is whether Mr Jeffrey should be awarded an indemnity for his costs of defending these proceedings at the cap of $90,000 set by the Court for the period between 9 May 2018 and 20 February 2020. Mr Jeffrey is content to be awarded costs at the cap imposed by the second and third judgments and says that the costs actually incurred well exceed the cap. The Ludwigs want the maximum costs awarded for this period to be no more than $50,000. 2. The second sub-issue is whether Mr Jeffrey should be awarded an indemnity for his costs of defending these proceedings at the cap of $20,000 set by the Court for the period from 20 February 2020 to the date of the second judgment (30 November 2020). Mr Jeffrey is content to be awarded costs at the cap imposed by the second and third judgments and says that the costs actually incurred well exceed the cap. The Ludwigs want the maximum costs awarded for this period to be no more than $14,000. 1. Mr Jeffrey submits that his recoverable costs on his trustee's indemnity comfortably exceeds the declarations 3(b) and (c) caps imposed by the Court. The Court agrees with that submission, subject to the specific contentions raised by the Ludwigs below. The rates charged by junior counsel and the solicitor for Mr Jeffrey are reasonable. The timing, nature and extent of the costs incurred as described in the invoices in evidence are approximately what the Court anticipated would have been expended by the trustee but for the caps imposed by the Court. 2. Mr Jeffrey's actual costs between 9 May 2018 and 20 February 2020 are $114,442.51. But for the imposition of the caps the Court would have allowed at least $110,000 as a specified gross sum instead of assessed costs. And Mr Jeffrey's actual costs from 20 February 2020 up to the date of the second judgment were in fact considerably more than the estimate of $25,000 available at time of the second judgment. They were ultimately billed at $35,223.75. But for the imposition of the caps the Court would have allowed at least $30,000 as a specified gross sum instead of assessed costs. 3. But the Ludwigs contend that Mr Jeffrey should not have an indemnity for a substantial proportion of his costs. Mr Shad, the solicitor for the Ludwigs has gone through the invoices that were issued by Ms Ensor and Mr Whitfield and identified the involvement of Ms Drake. Ms Drake is Mr Jeffrey's mother and his attorney under a power of attorney. The Ludwigs contend that costs associated with Ms Drake's attendance should not be allowed as part of Mr Jeffrey's legal costs. The Ludwigs contend that due to a intrafamily dispute Ms Drake was motivated to increase the costs of these proceedings to the Ludwigs. In contrast, Mr Jeffrey submits that Ms Drake was the defendant's attorney and = she had a right to instruct Mr Whitfield and Ms Ensor on behalf of the defendants. 4. The Ludwigs submit there is a fundamental defect with that approach. Their submissions are the following. A trustee cannot delegate unless the trustee has the authority to do so: Pilkington v Inland Revenue (1963) 3 All ER 622 at 630. The power of attorney was created in the year 2000, before the enactment of the Powers of Attorney Act 2003, so the provisions of the Conveyancing Act 1919, s 163B(2) apply to it and s 163B(1) and (2) then provided as follows: 163B Power conferred by prescribed form of instrument (1) Subject to this section, an instrument (whether or not under seal) in or to the effect of the form in Schedule 7 confers on the attorney thereby appointed authority to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do. (2) The authority conferred by an instrument referred to in subsection (1) does not include: (a) authority to exercise or perform any power, authority, duty or function as a trustee conferred or imposed on the person executing the instrument, or (b) unless it is expressly conferred by the instrument — authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument. 1. The Ludwigs submit that the reference to "as trustee" in s 163B(2)(a) has been held by Court of Appeal in Belfield v Belfield (2012) 83 NSWLR 189 at [67] ("Belfield") to be a reference to a person occupying the office of a trustee. The Ludwigs submit Mr Jeffrey was in breach of his obligations to act personally as a trustee and cannot rely on the power of attorney to overcome that breach. He cannot now ask the Equity Court to allow his costs incurred notwithstanding those costs were incurred in breach of his duties and obligations. 2. The Ludwigs submit that any costs involving Ms Drake should not be allowed on a gross sum costs determination. Those costs are up to $22,000 with respect to Mr Whitfield and up to $24,000 with respect to Ms Ensor. These figures include any communications between these lawyers and Ms Drake. 3. This argument is not persuasive. Mr Jeffrey resides abroad and it is obviously convenient for him to instruct lawyers partly through his attorney, Ms Drake. That does not mean that any legal fees associated with his giving instructions through Ms Drake should be disallowed, merely because she is the means for giving instructions to the trustee's lawyers. Ms Drake has not obviously exercised or performed "any power, authority, duty or function" of Mr Jeffrey "as a trustee" within s 163B(2)(a). The invoices that refer to Ms Drake giving instructions do not establish that she is performing any of Mr Jeffrey's powers, authorities, duties or functions as a trustee, as distinct from merely conveying his decisions as the trustee to his lawyers. As Belfield explains at [53] – [67] the limitation of the operation of a power of attorney under s 163B(1) is enlivened when the relevant "power, authority, duty or function" is one that the person has "by virtue of occupying the office of trustee". This is equivalent to the cognate English legislation (the Powers of Attorney Act 1971 (UK), s 10), and means the "functions the person has in the capacity of holding the office of trustee: Belfield at [60]. Such functions would normally connote trustees discretions and the like and do not demonstrably include what Ms Drake was doing, which seems merely to have been ministerial acts such as giving instructions on behalf of Mr Jeffery as far as can be see from the evidence. 4. The Court of Appeal did not disturb the caps referred to in the Court's second and third judgments and despite the actual costs figures proving to be slightly different from the estimates previously available, the Court sees no reason to adjust the caps. 5. The Ludwigs also submitted that in reducing the costs claimed by Mr Jeffrey, the evidence he relied upon should have been limited to the following matters: to the trustee obtaining an expert opinion as to the taxation liabilities of the trustee; to the basis on which the trustee rejected the proposal put forward by the plaintiff; and to the trustee's counter proposal put forward to preserve his rights and preserve the trust assets. 6. This argument is also not persuasive. The Court found in the second judgment that Mr Jeffrey was justified in not transferring the property to the Ludwigs, because adequate security for his liabilities as trustee was not being offered to him as a condition of the transfer: second judgment, at [107]. Given this finding, and subject to the Court's observations in the second judgment about the need for judicial advice, it was reasonable for Mr Jeffrey to continue generally to incur costs in his trusteeship beyond the narrow parameters set by the Ludwigs in this submission. (2) The Costs before Lindsay J 1. The parties disagree as to how much should be allowed to Mr Jeffrey by way of costs in respect of the application and hearing before Lindsay J on 11 June 2020. The Court described the nature of the application before Lindsay J in the second judgment at [8] – [10] and recorded the outcome before Lindsay J in which his Honour reserved the costs of the Ludwig's motion for later determination by the trial judge. In the second judgment the Court determined those costs and the question of Mr Jeffrey's indemnity in the following way: [137] There was a contest about the costs before Lindsay J. The Ludwigs say that Mr Jeffrey capitulated and agreed to the release of the funds sought and seek costs of this contest. The defendant ultimately consented to the release of the funds sought leaving the $204,000 in the hands of the independent solicitor, because this reflected the legal position: that Mr Jeffrey could only seek his right of indemnity out of trust assets. This was not a capitulation. By this time the parties had taken entrenched positions and, in the Court's view, Mr Jeffrey was not unreasonable to take a cautious position in the application before Lindsay J before agreeing to the release of the funds. In the Court's view, Mr Jeffrey should have indemnity for the costs before Lindsay J and no costs order should be made in favour of the Ludwigs for that application. [138] If the Court makes no costs order other than to grant an indemnity to Mr Jeffrey, constrained as the Court has reasoned, then costs will otherwise lie where they fall. The Ludwigs will bear their own costs of the proceedings. And in the Court's view, that is a just result for the reasons given. 1. It is clear from this passage that the Court has dealt with the question of the costs before Lindsay J. Indeed, declaration 3(d) with the third judgment gives Mr Jeffrey an indemnity in respect of those costs. The only remaining question is one of the quantification of Mr Jeffrey's indemnity. Mr Jeffrey claims that the proper figure for his costs before Lindsay J is $22,822.25. The Ludwigs contend that the appropriate figure is $5,000. 2. The Ludwigs submissions sought to re-agitate issues which the Court has already determined in relation to the application before Lindsay J. They argue that they were forced to put on a motion to release funds (which had been paid to the independent solicitor pursuant to the court's orders on 19 December 2019 and which were not trust funds. 3. The Court was going to deal with that issue on at a hearing listed for 6 March 2020. But the Covid-19 pandemic intervened, and that hearing did not take place. There was at that time no immediate urgency in obtaining the funds for the Ludwigs to complete another transaction. But that had changed by May 2020, when the matter was relisted before Lindsay J when I was on leave. 4. The Ludwigs submit that Mr Jeffrey says that he needed certain documents to decide whether he could release the funds. But the Ludwigs point out that the funds that were released were never trust funds. They submit that the provision of the documents, which related to a decision to release funds which were not trust funds, could never be properly characterised as reasonably incurred. The submission is that Mr Jeffrey should not have forced the Ludwigs to file a motion to get access to funds which were two thirds of the sale proceeds and were not trust funds. Whatever joint tenancy had existed previously it had been severed once declarations were made and the trust only related to one third of the sale proceeds. 5. On behalf of the Ludwigs, Mr Shad submitted that the question of costs before Lindsay J was undetermined and the best approach in the circumstances would be, rather than make costs order against Mr Jeffrey, for the Court to make no order as to costs and to deny the trustee any entitlement to indemnity for his costs of that motion. 6. But this submission comes up squarely against paragraphs [137] and [138] of the second judgment, which show that questions of costs and Mr Jeffrey's indemnity for his costs have already been considered and decided. 7. As to issues of the quantum of those costs, the Court has looked at the elements of Mr Jeffrey's claim for costs before Lindsay J. Mr Shad has highlighted on behalf of the Ludwigs that the preparation time of several days for the motion seems to be high. But in a matter with the detailed history of this one, with its taxation and trust complexity, the Court would not regard this preparation time as excessive, such that it should be disallowed. Otherwise there does not appear to the Court to be anything improper, unreasonable, or excessive either in nature or amount in his claim for costs and it will be allowed. (3) Costs of the s98(4)(c) Contest and Other Costs to Date 1. It remains to consider the costs of this s98(4)(c) contest and other costs Mr Jeffrey has incurred as trustee after 30 November 2020 and up to the present time. 2. Mr Jeffrey submits that he has been successful in this s98(4)(c) contest. The combined amount of the caps in declarations 3(b) and (c) is $110,000 ($90,000 plus $20,000). Exceeding the Court's caps by 5% was the Court's measure of success. That threshold is $115,500. The the Court has found in relation to in declarations 3(b) and (c) that but for the Court imposed caps Mr Jeffrey would have recovered at least $140,000 ($110,000 plus $30,000) by way of a gross sum instead of assessed costs. And he has recovered the full amount of the costs he has claimed before Lindsay J. He has been successful according to the Court's definition and should have the costs of the present contest on the indemnity basis. 3. But he should also have an indemnity out of the trust property in respect of any other costs after 30 November 2020 excluding the appeal costs which have been dealt with separately. He has been generally successful in respect of other lesser matters during that period and has conducted the proceedings reasonably. For example, the Ludwigs withdrew the contest about Trustee Act, s 100A during this period and conceded that they had personal liability to indemnify Mr Jeffrey. 4. The Court does not expect these costs to be very substantial and will scrutinise them closely when quantified, given the warnings that the Court has repeatedly given in this case about the parties incurring excessive costs. 5. The costs since 30 November 2020 will need to be dealt with briefly by way of a specified gross sum costs order to avoid an extra costs assessment in addition to any costs assessment consequent upon the Court of Appeal's orders. 6. The Court sought to limit the parties to a budget of additional costs expenditure of no more than $5,000 each, in their contest about costs after 30 November 2020. The power to impose maximum costs budgets in advance is available to the Court under CPA, s98(4)(d). The parties accepted the budget suggested by the Court. The orders made today include directions for the parties to file limited evidence and submissions in relation to costs incurred after 30 November 2020. But costs expenditure on that issue will be limited to $5,000. 7. The Court will not yet make orders against the Ludwigs for them to meet any shortfall in the payment of costs to Mr Jeffrey from the funds available to the independent solicitor until extent of any shortfall is clearer. If a shortfall arises, as it probably will, the Court will make orders for the payment of a precise amount, so the parties have certainty as to their legal obligations. Conclusions and Orders 1. For these reasons the Court makes the following orders and directions: 1. Declare that the specified gross sum instead of assessed costs in respect of the period in declaration 3(b) made 27 January 2021 is $110,000; 2. Declare that the specified gross sum instead of assessed costs in respect of the period in declaration 3(c) made 27 January 2021 is $30,000; 3. Declare that the specified gross sum instead of assessed costs in respect of the period in declaration 3(d) made 27 January 2021 is $22,822.25; 4. Order that the amounts of $90,000 and $20,000 referred to in declarations 3(b) and 3(c) made by the Court on 27 January 2021 may be paid out by the independent solicitor to the defendant/cross-claimant ("Mr Jeffrey"); 5. Order that the sum of $22,822.25 referred to in declaration 3(d) made by the Court on 27 January 2021 may be paid out by the independent solicitor to Mr Jeffrey; 6. Order the plaintiffs/cross defendants ("the Ludwigs") to pay the costs of the defendant/cross-claimant ("Mr Jeffrey") of all disputes in relation to the fixing of a specified gross sum costs order instead of assessed costs and all other costs incurred after 30 November 2020 on the indemnity basis but excluding the costs of appeal proceedings the subject of judgment [2021] NSWCA 256; 7. Note that the Court has not yet made CPA, s 98(4)(c) orders in respect of costs incurred after 20 February 2020 and to resolve issues of the quantum of post-30 November 2020 costs (the "post-30 November 2020 costs dispute") the Court makes the following further directions; 1. order that that the parties incur no more than $5000 in costs each in adducing evidence and putting submissions to resolve the post-30 November 2020 costs dispute; 2. direct Mr Jeffrey to file and serve any evidence upon which he wishes to rely in the post-30 November 2020 costs dispute by 6 May 2022; 3. direct the Ludwigs to file and serve any evidence upon which they wish to rely in the post-30 November 2020 costs dispute by 20 May 2022; 4. direct Mr Jeffrey to file and serve any submissions upon which they wish to rely in the post-30 November 2020 costs dispute by 27 May 2022; 5. direct the Ludwigs to file and serve any submissions upon which they wish to rely in the post-30 November 2020 costs dispute by 3 June 2022; and 6. upon receipt of evidence and submissions the Court will determine the post-30 November 2020 costs dispute in chambers, unless the Court decides to require a further hearing. ********** Amendments 09 June 2022 - In Orders: (b)... "dispute by... 6 May 2020 changed to 6 May 2022"; (c)... " dispute by.... 20 May 2020 changed to 20 May 2022"; (d)..."dispute by... 27 May 2020 changed to 27 May 2022"; (e).... dispute by... 3 June 2020 changed to 3 June 2022" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 June 2022